Scenic Holding, LLC v. The New Board of Trustees of the Tabernacle Missionary Baptist Church, Inc., et al.

Scenic Holding, LLC (Scenic), brought suit against the New Board of Trustees
of the Tabernacle Missionary Baptist Church (New Board), as well as several trustees
and representatives of the Tabernacle Missionary Baptist Church (Tabernacle),
seeking to collect on a note executed by the New Board and to foreclose a mortgage
on property belonging to Tabernacle. As an initial matter, the district court1 denied
Scenic's motion to recuse. After a bench trial, the district court found the note valid
against the New Board, but denied Scenic's request for foreclosure because Scenic
failed to prove the New Board had authority to encumber Tabernacle's property.
Scenic appeals, arguing the district court erred in (1) denying Scenic's motion to
recuse, (2) dismissing eight counts from Scenic's third amended complaint,
(3) placing on Scenic the burden of proving the New Board's authority to bind
Tabernacle, and (4) excluding certain evidence at trial. We affirm.

I. BACKGROUND

Tabernacle is a Baptist church located in Little Rock, Arkansas. Baptist
churches are congregational churches in form and structure, meaning such churches
determine their affairs "by the vote of the majority of the members of that church and
not by some other hierarchical form of church government." Carter v. Phillips, 722
S.W.2d 590, 592 (Ark. 1987); see also McCree v. Walker, 101 S.W.3d 276, 278 (Ark.
Ct. App. 2003). See, e.g., Elston v. Wilborn, 186 S.W.2d 662, 663 (Ark. 1945) ("In
congregational groups the affairs are determined by the vote of the majority of the
members."). Similarly, Tabernacle's canons provide that Tabernacle's executive
power is vested in a board of trustees consisting of three members elected at
Tabernacle's annual general assembly meeting. The canons also provide the board of
trustees may not mortgage Tabernacle's real or personal property without prior
approval of a two-thirds majority vote of members present and voting at a Tabernacle
meeting for which notice of the proposed action was given.

In 1997, Tabernacle bought real property in Little Rock for $550,000, and
financed the purchase through a loan (1997 mortgage) from Superior Federal Bank
(Superior). On January 15, 1999, Joe Givens (Givens), Vince Howard (Howard), and
Carl Hunter, acting as Tabernacle trustees, executed a $550,000 note to Superior,
secured by a first mortgage on Tabernacle's real and personal property (1999
mortgage). Tabernacle used the loan proceeds to pay off the 1997 mortgage.

Sometime during 1999 or 2000, twelve Tabernacle members met for the
purpose of organizing a non-profit corporation. Tabernacle's members neither
received notice of nor approved this meeting as required by Tabernacle's canons.
During the meeting, Tabernacle's pastor appointed three members to serve as trustees
of a newly-formed non-profit corporation referred to as the New Board. The New
Board's three trustees and officers included chairman Michael Thompson
(Thompson), vice chairman Givens, and treasurer Howard.

By early 2000, Tabernacle's payments on the 1999 mortgage became
delinquent, and Tabernacle representatives met in June with Superior to discuss the
delinquency. When Tabernacle asked for an additional loan, Superior requested the
signatures of the Tabernacle's board of trustees or minutes from the trustees' meeting
approving Tabernacle's loan request. On July 11, 2000, in a letter bearing
Tabernacle's logo and entitled "Notice Letter of Authorization," the New Board stated
it was authorized to take any action necessary to carry out the loan proposal.

On March 27, 2001, the New Board executed a loan agreement with Superior.
The loan agreement was signed on behalf of the New Board by Thompson, Givens,
and Howard in their official capacity as officers and trustees. The same day,
Thompson, Givens, and Howard, again acting on behalf of the New Board, executed
a multipurpose note and security agreement (2001 note) in the amount of $532,502.29
in favor of Superior and secured by the same Tabernacle property designated in the
1999 mortgage. The three men also signed a modification of the 1999 mortgage
between the Tabernacle trustees and Superior, but signed the document as Tabernacle
trustees, not on behalf of the New Board. The New Board later defaulted on its
payments under the 2001 note, and on September 25, 2001, the New Board signed an
extension and amendment to the 2001 note, as well as another modification of the
1999 mortgage.

On December 12, 2002, Superior and Scenic entered into an agreement for
Scenic to purchase the New Board's 2001 note for $150,000. Superior assigned the
2001 note, the 1999 mortgage, and other loan documents to Scenic, and also agreed
to assign "[s]uch other assignments and documents necessary to assign and transfer
the Loan Documents and liens of Superior." Under the agreement, Superior warranted
that the 2001 note matured on September 25, 2002, and the New Board was in default.

On July 25, 2003, Scenic filed suit in federal district court against the New
Board, seeking a judgment on the 2001 note in the amount of $538,561.21 and foreclosure of a mortgage on Tabernacle's property securing the 2001 note. The New
Board denied the 2001 note was secured, and also alleged the New Board lacked
authority to encumber Tabernacle's property and a defect of parties. Scenic filed an
amended complaint, adding Thompson, Givens, and Howard as defendants. Scenic
later filed a second amended complaint adding Casey Roberts, in his capacity as
Tabernacle's trustee and representative. Four other individuals later intervened as
defendants in their capacity as trustees of Tabernacle (collectively, the Intervenor
Trustees). The defendants argued Tabernacle and the New Board were separate and
distinct entities. They further argued Tabernacle had no responsibility for the
obligations incurred by the New Board because no meeting of Tabernacle's
congregation had been called or held to approve either the 1999 note and mortgage or
the 2001 note and modification to the 1999 mortgage.

On January 16, 2004, Scenic moved the district court to appoint a receiver to
take charge of and protect the mortgaged property, a portion of which had been
damaged by a fire in February 2003 and still was being used by Tabernacle. A
hearing on Scenic's motion for the appointment of a receiver was held on January 27
and 28, 2005. The district court denied Scenic's motion on February 8, 2005. One
week later, Scenic moved for summary judgment against the New Board and
incorporated by reference its previously-filed motion for a ruling on the merits of its
claims. The district court denied Scenic's summary judgment motion based on lack
of mutuality of obligations in the agreement between Scenic and the New Board, and
further held Scenic's motion for a ruling on the merits was moot. Scenic then moved
for recusal under 28 U.S.C. § 455(a), arguing the district court's rulings and conduct
demonstrated an appearance of partiality. The district court denied Scenic's recusal
motion.

On March 29, 2006, Scenic filed a third amended complaint, asserting eight
new causes of action.2 In their answer to the third amended complaint, the Intervenor
Trustees alleged as affirmative defenses that Superior had not assigned the new causes
of action to Scenic, and Scenic lacked standing to sue on the new claims because
Arkansas law prohibited the assignment of the claims.

A bench trial commenced on April 17, 2006. During cross-examination of
Scenic's last witness on the third day of trial, Scenic's representative, Sam McGee
(McGee), testified Superior's assignment to Scenic in 2002 did not refer to or
specifically describe the eight new causes of action. McGee then testified Superior
had executed a "general assignment" of loan documents to Scenic. McGee produced
a document, which had been acknowledged on April 14, 2006, purporting to assign
all the contract and tort claims. The document had not been seen before by counsel
for any of the parties.

The New Board and the Intervenor Trustees argued: (1) Scenic did not have an
assignment of the eight new causes of action; (2) Arkansas law prohibited the
assignment of claims not authorized by statute, and thus prohibited the eight new
claims set forth in Scenic's third amended complaint; and (3) under Arkansas law,
Superior's successor, Arvest Bank (Arvest), was an indispensable party and must be
joined, which would destroy diversity jurisdiction and require dismissal of the case.
After extensive argument by counsel for all the parties, the district court directed
Scenic to add Arvest as a party plaintiff and suggested when Arvest was joined the
district court would dismiss the case. The following day, Scenic's counsel informed
the district court that because Arvest refused to join the action, Scenic's counsel had filed a fourth amended complaint adding Arvest as an involuntary plaintiff without
Arvest's approval or permission. To avoid placing Scenic's counsel in an unstable
relationship with Arvest, the district court struck Scenic's eight new causes of action
from the third amended complaint, finding (1) Arvest was a necessary and
indispensable party, (2) Scenic failed to disclose the general assignment before trial
commenced, and (3) the defendants thus were unable to cross-examine effectively
Scenic's witnesses and to defend against the newly asserted claims.

After the trial, the district court held the note executed by the New Board was
valid but unsecured, because (1) the New Board and Tabernacle were separate entities,
and (2) Scenic failed to prove the New Board or its three individual officers were
authorized to represent Tabernacle for the purpose of executing the multipurpose note
and modification of the 1999 mortgage. This appeal followed.

* * *

Scenic contends the district court erred in denying Scenic's motion to recuse
because the district judge appeared biased in favor of the defendants based on the
defendants' religious affiliation. We review for abuse of discretion the denial of a
motion to recuse. Moran v. Clarke, 296 F.3d 638, 648 (8th Cir. 2002) (en banc).
Under 28 U.S.C. § 455(a), a judge "shall disqualify himself in any proceeding in
which his impartiality might reasonably be questioned." Because § 455(a) sets forth
an objective standard, whether a judge actually is biased or actually knows of a ground
requiring recusal is irrelevant. Moran, 296 F.3d at 648. Rather, the issue is "whether
the judge's impartiality might reasonably be questioned by the average person on the
street who knows all the relevant facts of a case." Id. (quotation omitted). "Because
a judge is presumed to be impartial, a party seeking recusal bears the substantial
burden of proving otherwise." United States v. Martinez, 446 F.3d 878, 883 (8th Cir.
2006). We presume the honesty, integrity, and impartiality of those serving as judges.
See Dyas v. Lockhart, 705 F.2d 993, 997 (8th Cir. 1983). The Supreme Court has recognized that "judicial remarks during the course of a trial that are critical or
disapproving of, or even hostile to, counsel, the parties, or their cases, ordinarily do
not support a bias or partiality challenge." Liteky v. United States, 510 U.S. 540, 555
(1994). Nor do "expressions of impatience, dissatisfaction, annoyance, and even
anger, that are within the bounds of what imperfect men and women, even after having
been confirmed as federal judges, sometimes display." Id. at 555-56.

Scenic asserts the following actions by the district judge demonstrate a
reasonable appearance of bias: (1) crediting a witness's testimony because the witness
was a church member; (2) allowing cross-examination of Scenic's witnesses regarding
their religious affiliations on the basis it implicated credibility; (3) allowing crossexamination
of witnesses regarding their knowledge of the Baptist denomination;
(4) questioning one of Scenic's witnesses based on the district judge's extrajudicial
knowledge regarding the Baptist denomination; (5) making unnecessary statements
on the basis of the defendants' religious affiliations; (6) making unwarranted, sua
sponte objections to Scenic's counsel leading an adverse witness who was also a
defendant; (7) allowing repeated witness voir dire by defense counsel; (8) refusing to
admit over thirty proffered plaintiff exhibits; (9) prohibiting Superior's loan officer
from testifying on certain matters relevant to Scenic's claims; (10) denying Scenic's
motion for summary judgment after raising an issue sua sponte without allowing
Scenic to respond; and (11) engaging in other conduct demonstrating an unfavorable
predisposition to Scenic.

Many of Scenic's characterizations of the district judge's conduct distort the
record and are taken out of context. For instance, Scenic contends the district judge
inappropriately rebuked Scenic's counsel for questioning Givens's honesty and then
credited Givens's testimony on the basis of his Baptist denomination. During the
receivership hearing, Scenic's counsel attempted to enter an exhibit for the purpose
of demonstrating that the New Board and Tabernacle functioned as the same entity.
The district judge rejected counsel's offer, noting Givens had just testified the two
entities were not one and the same. Scenic's counsel replied, "He's lying, Your
Honor." The district judge responded the witness was "under oath to tell the truth and
he's a church member." He instructed Scenic's counsel, "As an officer of the court
you must respect a witness," and further stated, "Don't allege for the record that [the
witness] is lying when he has taken an oath to tell the truth."

Contrary to Scenic's assertions, nothing indicates the district judge improperly
credited Givens's testimony on the basis of his religious affiliation or beliefs. The
circumstances of this case and the law applicable to Scenic's ability to foreclose a
mortgage on Tabernacle's property necessitated, or, at a minimum, justified, an
examination of matters of congregational church governance and of Tabernacle
members' authority to encumber church property. Thus, reviewing the
aforementioned exchange in context leads us to conclude the district judge probably
noted Givens, by virtue of being a Tabernacle member, had personal knowledge to
testify about matters of congregational organization and governance.

For similar reasons, the allowance of cross-examination of Scenic's witnesses
regarding their religious affiliations and their knowledge of the Baptist church did not
require the district judge's recusal. The witnesses in question were loan officers of
Superior and were called by Scenic to testify about the validity of the 1999 mortgage
and the 2001 note assigned to Scenic by Superior. Both witnesses were asked whether
they were members of the Baptist church, and whether they were familiar with or had
investigated either the organization of Baptist churches or the authority of church
trustees to mortgage or transfer church property. We reject Scenic's assertion that
allowing such relevant questioning improperly injected religion-based bias into this
legal dispute.

Scenic also challenges the district judge's questioning of one of Scenic's
witnesses based on the district judge's "extrajudicial knowledge regarding the Baptist denomination."3 "[O]pinions formed by the judge on the basis of facts introduced or
events occurring in the course of the current proceedings . . . do not constitute a basis
for a bias or partiality motion unless they display a deep-seated favoritism or
antagonism that would make fair judgment impossible." Id. Here, the district judge's
questions do not reveal or suggest unequivocal favoritism or antagonism, and Scenic
fails to demonstrate such questions were improperly derived from impermissible
extrajudicial knowledge rather than on the record of the case itself or from
representations made by the parties or their attorneys. See White v. Luebbers, 307
F.3d 722, 731 (8th Cir. 2002) ("So long as the court's expressed views come from the
record of the case itself, or from representations properly made by the parties or their
lawyers, nothing improper has occurred.").

In further support of its bias argument, Scenic notes that in the receivership
hearing the district judge repeatedly interrupted Scenic's counsel during direct
examination of Givens and instructed Scenic's counsel to avoid asking leading
questions. Scenic called the defendant Givens as a witness; thus, Givens was an
adverse witness. Scenic contends the district judge's sua sponte objections violate
Federal Rule of Evidence 611(c), which allows a party to conduct an examination
using leading questions when an adverse witness is called. The standard, acceptable,
and preferred procedure is to permit counsel to lead an adverse or hostile witness on
direct examination. However, Rule 611(c) is permissive and must be read in context
with the trial court's general authority and discretion to control the conduct of the
trial. The impact of the district court's ruling, however, appears minuscule,
particularly when Scenic does not allege the district judge denied any request during trial to pose leading questions to this witness.4 We perceive no substantial right of
Scenic was affected. See Fed. R. Evid. 103(a).

Scenic argues other examples of the district judge's bias occurred when the
district judge sustained an objection on the ground of speculation, commenting, "The
Good Lord hasn't empowered us to tell what's in the crevices of the mind as of this
time." Later, in denying Scenic's motion for a receiver, the district judge stated, "I'd
like to emphasize, here is a religious constitution committed to upholding the
standards of Christ, that is, be right and righteous. Here is an entity with more than
a hundred members who are dedicated to serving mankind and treating neighbors and
associates in a Godly fashion." Notwithstanding the questionable propriety of these
judicial comments, we must view them under the totality of the circumstances, and not
in isolation. Upon doing so, we reject Scenic's assertion that these statements would
demonstrate an apparent bias in favor of the defendants when evaluated by the average
person on the street knowing all the relevant case facts.

The inquiry whether a reasonable person, informed of all the relevant facts and
circumstances of the case, would perceive bias or partiality by a judge warrants
consideration of the judge's course of rulings and conduct. Moran, 296 F.3d at 649.
In arguing the district judge's rulings and conduct contributed to the appearance of
religious favoritism and thus required recusal, Scenic challenges a multitude of
unfavorable rulings or remarks by the district judge that occurred during the
receivership hearing and the later trial on the mortgage foreclosure action. Although
we recognize Scenic's dissatisfaction with the district judge's rulings and conduct, we decline to deem them evidence of bias or partiality. The grounds Scenic asserts in
favor of recusal consist mainly of judicial rulings, routine trial administration, and
unremarkable admonishments, all of which are inadequate to require the district
judge's disqualification. See Liteky, 510 U.S. at 555, 556 (recognizing "judicial
rulings alone almost never constitute a valid basis for a bias or partiality motion").
Keeping in mind Scenic's substantial burden to prove bias and partiality, we conclude
an average observer, being informed of all the facts and circumstances of the case,
would not reasonably question the district judge's impartiality. Thus, the district court
did not abuse its discretion in denying Scenic's motion to recuse.

* * *

For the full text of this opinion, go to: http://www.ca8.uscourts.gov/opndir/07/11/062934P.pdf